IBM Filling Up on Data

Updated from Nov. 25

IBM ( IBM) is betting a billion dollars that it can parlay its investment in a complex technology used to aggregate disparate threads of corporate data into a serious competitive advantage over rivals Oracle ( ORCL) and SAP ( SAP).

In the last three last years, Big Blue has built a 1,000-person business unit, acquired five privately held companies, and spent heavily on R&D in an effort to exploit the growing market for master data management, or MDM.

Why spend so much? By 2009, the MDM market is expected to grow to $10.4 billion, from $5.4 billion, a compound growth rate of 13.8%, according to market research firm IDC. By contrast, the market for database software is growing at a compounded rate of just 6.4%, though from a much larger base. What's more, master data technology is closely related to both middleware and database software; winning in MDM opens the door to lucrative cross-selling.

Simply put, MDM attempts to give businesses a single, accurate view of customers, partners or suppliers, by drawing data from separate stores of data scattered across an enterprise.

Daniel Drucker, who heads IBM's MDM business, illustrates the benefits of the technology by recounting the experience of a Las Vegas casino that nabbed a card cheat. Casino security officials ran the cardsharp's phone number through the MDM system and found that it matched a phone number the dealer gave on his employment application two years previously. Both were arrested.

"For the last 30 years, companies have deployed applications, but each one only looks at a piece of the data," Drucker says. Data on a customer's mortgage, for example, that are stored in one software application are often not available via other applications used by the same company. So, a call-center staffer might miss the opportunity to sell mortgage insurance or another related product when the customer calls on another matter. Even worse, data in one store may be older and no longer accurate, as addresses and phone numbers change.

The problem is even tougher when businesses merge, or have units operating in multiple countries with varying cultures and regulatory requirements. One major complication: Getting systems to agree on common definitions. Indeed, describing data in a standardized way is so complex that Oracle has turned to research on the "semantic web" pioneered by Tim Berners-Lee, widely known as the inventor of the World Wide Web, says Oracle vice president Robert Shimp. The semantic web is geared toward creating a universal medium for information exchange among machines.

Oracle claims an advantage in MDM because it not only supplies the database to its customers, it also offers a growing package of applications, which IBM does not, while SAP supplies the applications but not the database. "Having both sides of the equation allows us to understand the data much better, says Shimp.

SAP's MDM efforts have met with little success so far says Aaron Zornes, chief research officer for The CDI Institute, an industry consulting and research company. However, analysts for Gartner, a market research and consulting company, disagree, saying SAP efforts appear to be on track.

IBM fired the latest shot in the MDM battle shortly before Thanksgiving, launching a portfolio of data management products that will be sold along with the company's WebSphere middleware. IBM's Drucker won't say how much revenue MDM is producing, but he claimed that year-over-year sales grew by about 100%.

Oracle too declines to break out MDM revenue, but Shimp says the technology, which his company calls "customer hubs," is now one of Oracle's most important. "We're growing our database business by making the databases richer and more functional," he says.

It's not clear if IBM's reinvigorated approach to MDM is stronger than Oracle's says IDC analyst Carl Olafson. He says that both companies have shored up areas of weakness; IBM is better than it was at integrating its technologies, rather than leaving it to the customer, while Oracle has become more conciliatory toward customers who run rival databases as well as its own.

The later point is significant because many companies, especially those that have grown through acquisitions or rely heavily on mainframes, are reluctant to throw out legacy databases.

Zornes, though, says that IBM has the edge, because its MDM products are better suited for the largest enterprises, while Oracle's real strength is in the midmarket. Even so, he admits that the pending acquisition of Siebel Systems ( SEBL) and its strong offerings in customer management relationship software could become a big plus for Oracle's MDM efforts.

As originally published, this story contained an error. Please see Corrections and Clarifications.

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